Tata Nano Revolution (Part 2): Straining a squeezed global oil market
With a sticker price half of the worldâ€™s cheapest cars (like Indiaâ€™s Maruti and Chinaâ€™s Chery brands), the $2,500 Nano will probably accelerate growth in auto sales, and thus fuel consumption, throughout the world.
The Nano may not change the automotive landscape in the US, Europe, or Japan since it doesnâ€™t conform to their safety standards. But these regions arenâ€™t the growth drivers of the automotive world anyway, with saturated markets of more than 700 vehicles per thousand people and slowly growing populations. However, it may ignite an auto revolution in India, where their twenty cars per thousand market could grow more than thirty times its current size.
The bulk of future Nano consumers currently ride motorcycles — which lack a carâ€™s carriage capacity and weather resiliency. While the Nano boasts respectable fuel economy ~50 miles per gallon, these bikes often get 80-110 miles per gallon. So, a Nano driver would demand roughly double the fuel.
In India, the 1.5 million vehicle sales annual market is already growing at a breathtaking clip of 15% per year. China is growing even faster at 20% annually and has recently become the 2nd biggest vehicle market at almost 9 million. These numbers are still significantly smaller than the 16 million US sales and a fraction of the 75 million vehicles sold worldwide that add up to one billion vehicles on the road currently. If a billion people can afford a vehicle starting at $5,000, those billion consumers had an income at least high enough to pay for a car and its fuel, letâ€™s say ~$10,000 annually. The question now is how many people have an income of between ~$6,000 and $10,000? My guess is that in our unequal world we may be talking about another billion people or a doubling of the auto market by 2030. If that is the case, Nanos seem capable of dramatically increasing oil demand. With transportation making up half of global oil consumption, a doubling of the number of four-wheel vehicles could raise oil demand more than 25%.
Meanwhile, oil producers seem unable to significantly increase supply due to production declines in Mexico, Norway, the UK and elsewhere. Without sufficient oil supply, a bidding war will likely emerge between US motorists trying to maintain a gas-guzzling lifestyle and a growing percentage of the developing world joining the world mobility elite in a Nano. This appears to almost guarantee increasing oil prices as a long-term reality.
While biofuels may play a role â€“ an increase of conventional corn ethanol threatens to make world grain prices climb higher than current records and magnify malnutrition in the hundreds of millions plagued by extreme poverty.
Iâ€™m rooting for strong developments in renewable energy technologies that can transition us to a plug-in hybrid electric vehicle fleet for a sustainable future. Without such advances in the near-term (along with improved transit services and bike/ped friendliness), current tensions over energy resources worldwide could flare-up into full-scale conflicts and prevent us from stopping climate change.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.